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UNDERSTANDING THE DUTCH
MARKET FOR INDUSTRIAL AREAS
with System Dynamics Modeling
ERES conference
Eindhoven 2011
Session: Market Research, Analysis and Forecasting
Erik Blokhuis
Eindhoven University of Technology
[email protected]
GENERAL
• Dutch policy on industrial areas is fully
aimed at:
– attracting companies
– stimulating local economy
– creating employment
• From these perspectives, the Dutch policy is
very successful
–
–
–
–
32% of total employment
35% of added value in NL is created on industrial areas
annual yield: € 1.7 million / hectare
distributive effect on employment
GENERAL
• Supply of space for industrial activities is
important factor for Dutch economy
• This economic relevance influences the
planning and realization of industrial areas
– large governmental influence (80% of supply of building land)
– availability of large stocks of immediately grantable land
– strong connection to wishes and demands of companies
• legal certainty, good accessibility, flexibility, sufficient space, low costs
PLANNING APPROACH
1. ESTIMATION OF DEMAND
Estimate level of
regional demand
(municipality /
province)
Determine future
supply in terms of
existing plans
(municipality)
Planning
task
Select new locations
based on planning task
(municipality)
2. PLAN DEVELOPMENT
Update land-use plans
for the selected new
locations
(municipality)
Fixed landuse plans
Try to buy up all of the
necessary land
(municipality)
Prepare the land for
granting (municipality)
3. CONSTRUCTION
Sell the land plots to
individual companies
(municipality)
Build a suitable
accommodation on the
site (company)
Arrange servicing:
roads, sewer, water,
power (municipality)
4. MANAGEMENT & MAINTENANCE
Manage/maintain
buildings and private
spaces (companies)
Manage/maintain
public spaces,
infrastructure
(municipality)
Completion
PLANNING APPROACH
• Three main steps in planning process:
– estimating the level of regional demand (business location monitor)
– determining the future supply of industrial areas (existing plans)
– selecting new locations
• Actors’ influence
– municipalities have control over supply of industrial land
– companies find industrial areas attractive, because of low land
prices, legal certainty, and possibilities to buy more land than
necessary
– investors are almost absent, because of low gaining capacity, low
rent level, high sale risks
NEGATIVE CONSEQUENCES
• Large supply of new industrial area land plots
• Low land prices
• Low occupancy rates and rapid deterioration of
existing areas
• Stagnating redevelopment processes
NEGATIVE CONSEQUENCES
• Large supply of new industrial area land plots
– 50% of construction land is reserved for industrial activities, while
industry covers less than 20% of the currently built-up land
• Causes:
– lack of realism in demand estimations
– municipalities choose development in stead of redevelopment
– mutual competition between municipalities in attracting
companies
NEGATIVE CONSEQUENCES
• Low land prices
– Land prices for residential areas are 3-4 times higher
Related problems: inefficient land use, low investor involvement,
low attention for maintenance, …
NEGATIVE CONSEQUENCES
• Low occupancy rates and rapid deterioration of
existing areas
– Redevelopment task:
NEGATIVE CONSEQUENCES
• Stagnating redevelopment processes
– Lower line represents finished redevelopment projects
INTERVENTIONS
• Government recognized problematic
situation, and proposes five interventions:
– employment of the so-called SER tool
– introduction of park management
– reservation of 400 million Euros to accelerate the redevelopment
of deteriorated areas until 2013, aiming to redevelop 6.500 ha
– stimulation of regional cooperation, which should result in a
competitive and sustainably managed stock of industrial areas
– increasing involvement of professional real estate parties in the
industrial area market
SYSTEM DYNAMICS MODEL
• Most of these interventions will not have an
optimal effect because the Dutch market for
industrial areas functions as a complex system
– governing interventions will only be successful when the
underlying processes support them
– using System Dynamics (SD) to model the market for industrial
areas as a system
– SD deals with internal feedback loops that affect the behavior of
the system (more realistic), and can comprise a high number of
soft, hard-to-quantify factors besides numerical data
– now: only causal loop diagram. In the future, a stock and flow
diagram will be constructed
– eventually, we want to identify leverage points in the system, in
order to recommend on most effective intervention measures
External process
guidance
Added Value for Municipal
Land Company (agriculture ->
industry)
-
competition
between new
and existing
areas (+)
+
+
-
profitability for
municipalities
(+)
+
+
Execution of
Redevelopment Task
-
Interest Charges
+
Potential of Achieving Added
Value through Redevelopment
(when necessary)
Complexity of
Redevelopment Task
Yield of extra space
through redevelopment
-
Recovery Time
Production Costs (Mun)
Redevelopment
Costs
-
value
potential of
redevelop
ment (+)
-
Stocks of
Prepared Sites
+
municipal
competition
(+)
+
-
Land Prices New
Areas
Share of New Areas in
Meeting Spatial Demand
+
Inter-Municipal
Competition
+
Investments in Quality and
Maintenance Existing Areas
(Mun)
+
land and
RE prices
(+)
+
Necessity for
Redevelopment
Uniformity of
building stock
Real Estate Costs
New Areas
-
+
+
-
+
+
demand
and supply
(+)
+
Spatial Demand for
Industrial Areas
Attitude: Industrial Areas /
Activities Stimulate Local
Economy
+
+
Utilization on
Existing Areas
Attention for real
estate maintenance
+
+
+
+
+
Park management
+
+
Employment
Occupancy on
New Areas
+
Growth of the
stock
+
area value
and
profitability
(+)
Depreciation of
buildings
-
Economic
development
Role of professional
real estate companies
Circulation
+
+
Overestimation in
Demand Calculations
+
Quality of Existing
Areas
Market value of the
building stock
Value of Existing
Areas
+
-
+
Profitability of
industrial area real
estate
RESULTS
• Remarkably, this causal loop diagram
lacks negative feedback (or viability) loops
– These keep systems working everlastingly
– Domination of reinforcing loops will result in an unstable system
and oversupply of stocks (the case in the current market for IA)
• Leverage points:
–
–
–
–
–
–
Demand calculation
Share of new areas in meeting demand
Land prices
Value of existing areas
Municipal competition
Role of professional real estate companies
RECOMMENDATIONS
• Short term:
– Improving demand calculation method
– Obliging municipalities to study possibilities of redevelopment for
meeting spatial demands
– Drastically increasing land prices
– Establishing a national fund for increasing area value
• Long term:
– Positioning planning and development of IA on regional scale
– Creating strong preconditions for professionalization of IA market
(increasing role of professional RE parties)
Requires large public investments!
THANKS…
Questions?